Tuesday, September 3, 2013

Ronald Coase

Most people won't know who Coase was. He was an academic, an economist who won the Nobel Prize in 1991 for his development of the Coase Theorem. Not exactly a household name, of course, and even in economics and political science and other related disciplines he isn't known much more than a few passing references.

The Coase Theorem itself is reasonably simple: given no transaction costs, two parties who negotiate will always come to an efficient conclusion regardless of the initial allocation of property. (Note for academics: this is ridiculously simplified. I get it.) It's usually applied in the case of externalities, such as noise or pollution or spectrum allocation. It may be better to see it in the form of an example, of which there are many on the Internet. The opinion about the theory is split: while it's academically sound, due to the presence of transaction costs it's rarely applicable in real life. And yet it *can* be, and in fact there are plenty of examples where it certainly applies, especially in the Internet age where transaction costs can be practically zero. And, in fact, the theory was the basis for more than one legal precedent for tort law.

More importantly, on a personal level, the Coase Theorem was one of the first concepts that "clicked" with me. It was one of the driving forces for me to switch my major to economics in college. The concept itself isn't difficult, but it's esoteric enough that it's not something that can be picked up in ten minutes. It's one of the few times--like you see in the movies--where I was sitting at my desk, poring over my papers under a sad yellowish light, looking up from my textbook and suddenly realized that it all made sense. It wasn't long after that where I started teaching other people the basics of economics; his death has reminded me how much I miss that. Sadly, there really isn't a market, outside of college freshman, for me to practice that.

There was plenty more after that, of course. I've always said that the dismal science could benefit everyone, regardless of their profession, though I recognize that pretty much everyone feels that way about what they do every day for their job. Still, I have to give credit where it is due: Ronald Coase was the impetus for me to study economics. I should be equally grateful and alarmed.